OPN 200417 Kristalina Georgieva-1587108811499
International Monetary Fund Managing Director Kristalina Georgieva speaks during a news conference after the International Monetary and Financial Committee (IMFC) meeting, at the World Bank/IMF meeting in Washington DC Image Credit: AP

I’m not sure what was on the syllabus of the political economy department at the Karl Marx Higher Institute of Economy in Sofia as Bulgaria languished under Soviet rule in the mid-1970s, but Kristalina Georgieva spent a lot of time studying there.

Whatever was on the courses she attended, she did emerge in 1976 with a PhD in Economics and a Masters in Political Economy and Sociology.

Nothing then — not even her final thesis on ‘Environmental Protection Policy and Economic Growth in the US’ could possibly help her as the director of the International Monetary Fund (IMF) in what she faces now.

Barely six months into her new job and the 66-year-old Georgieva faces the prospect of saving half of the world’s economy from total collapse as a result of coronavirus.

The IMF director cautioned that global economic output could fall even further if the coronavirus takes a “double trip” around the world and countries get hit by a second wave of new infections


If ever there was need for a course combining Chaos Theory, World Economics and Global Pandemics, now is it.

World's lender of last resort

As leader of the world’s lender of last resort, Georgieva is already anticipating things to be bad — very bad.

She warned earlier this week that 100 of the organisation’s 189 members — half of which are low-income and developing countries — have already contacted the IMF.

With widespread lockdowns and business shutdowns roiling the global economy, more than half of the world has already asked the IMF for a bailout, Georgieva told CNBC.

“This is an emergency like no other,” the IMF director said. “For that reason, we are providing funding very quickly.”

The IMF has a $1 trillion war chest to dole out emergency funding to its member countries as they try to contain the spread of coronavirus and mitigate its economic impact.

Her comments came after the IMF said on Tuesday it expects the global economy to contract by 3 per cent this year, stressing that international markets are hurtling toward the “worst recession since the Great Depression.”

Double trip around the world

And the IMF director cautioned that global economic output could fall even further if the coronavirus takes a “double trip” around the world and countries get hit by a second wave of new infections.

Just days earlier, Georgieva had warned the economic fallout from coronavirus was already “way worse than the global financial crisis of 2008.”

It’s a daunting baptism of fiscal fire for the woman who succeeded the elegant and high-profile Christine Lagarde who left head of the Washington-based lender that was set up in the dying days of the Second World War.

Then, the IMF was tasked with putting measures in place to rebuild the world’s economy from the chaos of conflict. Now, 75 years on, it faces another Herculean task to rebuild the world’s economy from the chaos of Covid-19.

So far, the message from Georgieva and the IMF is to spend whatever it takes to fight the coronavirus pandemic and ignore the damage for now that national support packages and programmes will inflict on precarious and fragile public finances.

“Spend what you can but keep the receipts,” Georgieva said, in a clear warning to countries that there was a risk that a chunk of the $8 trillion (Dh28.5 trillion) already committed would vanish as a result of corruption. “We don’t want accountability and transparency to take a back seat.”

When was the last time any bank told you to spend when you have to? No wonder the IMF views this economic crisis as even worse since the Great Depression. That’s at a macroeconomic level. On a micro-economic level, hold on to your money as best you can and tighten your belts. This is going to be one heck of a rollercoaster.

More on IMF

Exceptional times

“Exceptional times call for exceptional measures,” she warned last week as some 100 countries had contacted her bank — and they wouldn’t have been inquiries to check on foreign exchange rates.

The IMF expects public finances to deteriorate in virtually every nation and anticipates a huge increase in budget deficits. In macro terms, that’s the difference between what states secure in tax revenue and what they spend.

In micro terms, it means you and I will be paying more in taxes, levies, fees and getting less for it too, as governments make up the shortfall somehow and sometime. Yes, death and taxes are the only sure thing. Increased death rates from Covid-19, increased debt rates from Covid-19, and increased taxes from Covid-19.

According the IMF, the US budget deficit is projected to more than triple from 3 per cent of gross domestic product in 2019 to 10.7 per cent this year; China’s deficit is estimated to almost double from 6.4 to 11.2 per cent of GDP; the UK’s deficit will rise from 2.1 to 8.3 per cent of GDP — the same as in Spain but slightly lower than Italy’s 9.5 per cent of GDP shortfall.

Here’s a sobering thought: Last year, for every $1 in circulation around the world — 83.3 cents of it was owed by governments. Just 16.6¢ is free and clear. Now, when Covid-19 is factored in, just 3.6¢ will be left. The remaining 96.4¢ on every $1 will be owed by governments.

And at that level of borrowing — Italy, for example already owes €1.33 for every €1.00 is has — there’s very little room for manoeuvre.

Now add in the fact that economies everywhere will also face weak demand for products around the world, lower commodity prices — oil is languishing around the $25 per barrel mark — and very uncertain conditions for months at least to come, and you get an idea of the task facing Georgieva.

At least the G20 group of developed and developing nations threw a six-month lifeline to more than 70 of the world’s poorest nations on Wednesday by agreeing to suspend sovereign debt payments until the end of the year, and urged private creditors to join the initiative on a voluntary basis.

Nothing, not even her stint heading up the EU’s budget department, could prepare her for this. Her, and everyone else as well.

Mick O’Reilly is the Gulf News Foreign Correspondent based in Europe